Commercial Paper Mee 2013

Front 1

Note

Back 1

A promising party (maker) promises to pay the payee.

Front 2

Draft

Back 2

One party (drawer) orders another party (drawee) to pay money to a third party (payee, or bearer). Check, drawee is bank and payable on demand).

Front 3

Why is negotiability of an instrument better?

Back 3

If the paper is negotiable and properly negotiated, it may reach the hands of a special good faith purchaser called a holder in due course (HDC). HDC obtains better rights than transferor and thus can get paid from an obligor even though the obligor has defenses not to pay under normal contract law.

Like a maker of a note that doesn’t want to pay the obligation bc the product purchased was defective. Valid under contract law, but a HDC obtains better rights, and takes free of this and other K defenses.

Front 4

A Negotiable Instrument's Characteristics

Back 4

Determined at time of issuance.
1. A writing
2. Signed by the maker or drawer (present intent to authenticate).
3. That is an unconditional promise or order to pay
4. A fixed amount
5. Of money
6. With no other undertaking or instruction
7. On demand or at a definite time (if silent = demand)
8. Using words of negotiability

Front 5

Bearer Paper

Back 5

A check signed by the payee with no special instructions creates a blank endorsement, now anyone in possession has the right to cash it.

Front 6

Order Paper

Back 6

A check signed with special instructions or new payee. Further negotiations will require new payee’s signature.

Front 7

Holder In Due Course

Back 7

A (i) holder (possession and right to enforce) is in due course if the instrument held is (ii) negotiable, (iii) the authenticity is not apparently questioned (iv) paid value for the instrument (v) in good faith (vi) without notice of bad facts at time of the instrument acquisition.

Front 8

Real Defenses to HDC Status

Back 8

F: Fraud in factum, Forgery
A: Alteration, Adjudicated Incomp.
I: Infancy Illegality
D: Duress, Discharge through bankruptcy, Discharge known by HDC
S: Suretyship defenses, Statute of Lim.

Front 9

Structure of a Check Question

Back 9

By signing her name, the drawer of a check is liable to pay the holder of the instrument according to its terms at the time it was issued, after the holder presents the check for payment and it is dishonored. If a defense or claim is raised, the plaintiff can cut off the defenses by establishing HDC status.

Front 10

Transferor Warranties

Back 10

A transferor for consideration warrants:

She is entitled to enforce
Instrument has not been altered
All signatures are authentic and authorized
No defense against her
No knowledge of insolvency proceedings.

Front 11

Presentment Warranties

Back 11

A person who obtains payment and all prior transferors warrant that (i) they are entitled to enforce the check (ii) it was not altered (iii) they have no knowledge that drawer’s signature is unauthorized.

Front 12

Indorser Liability

Back 12

Arises to indorser when she signs the check, it is presented, dishonored, and the indorser is given notice of dishonor.